August 29, 2011

What is a Reverse Mortgage?


A reverse mortgage is a loan for senior homeowners that allow a portion of the home’s equity to be used as collateral. To be eligible for a reverse mortgage, all homeowners must be at least 62 years young. Unlike a traditional mortgage (credit score, income and debt ratios requirements along with a monthly payment), the reverse mortgage does not require income, minimum credit or a monthly payment. The amount that can be borrowed with a reverse mortgage is based on a FHA formula that considers age, current interest rate, appraised value and current lending limits.

Common Myths:

1. Myth – A reverse mortgage sells my home to the bank…..

Fact – The homeowner keeps the title to their home in their name.  What the bank does is add a lien onto the title so that the bank can guarantee that it will eventually receive payment for the funds that were borrowed.

2. Myth – The homeowner can be forced out of the home…..

Fact – The reverse mortgage was designed to allow seniors to live in their home for the rest of their lives.  Since there is not a monthly payment required, the homeowner can never be evicted or foreclosed on for non-payment.  However, the homeowner is responsible to maintain the home in good condition and keep the property taxes and insurance paid.

3. Myth – Someone can outlive a reverse mortgage…..

Fact – The reverse mortgage becomes due and payable when all homeowners have moved out of the property for 12 consecutive months or passed away.

4. Myth – My Heirs will not inherit the property…..

Fact – The estate inherits the property as usual, but there will be a lien on the title.  The lien will be for the reverse mortgage proceeds plus accrued interest.  A reverse mortgage is a “non-recourse” loan which means that the borrower (or his estate) can never owe more than the value of the property.

Purchase a Home with a Reverse Mortgage

The advantage of using a reverse mortgage to purchase a home – it can increase the amount you can purchase with NO MONTHLY PAYMENT.  For example, a consumer has $150,000 in cash to purchase a home.  Using a reverse mortgage, based on their age, current interest rates and lending limits, they may consider looking in the $250,000 – $300,000 price range for their new home.  This offers the consumer the option of keeping a portion of their savings or increasing their price range. 

Reverse Mortgage Advantages

v  Allows the homeowner to stay in their home for the rest of their lives.

v  Simple to qualify – no income or minimum credit score requirements.

v  A reverse mortgage is a “non-recourse” loan – never be “upside down”.

v  Loan proceeds are not taxable.

v  Best of all……NO MONTHLY PAYMENT.

Provided by:
David Neff
Vice President / Mortgage Loan Officer
BNC Bank Mortgage Division
3751 Robert Grissom Pkwy, Myrtle Beach, SC  29577
Office:  843-839-4937 / Cell:  843-424-1072
NMLS # 659249